Offshore Oil & Gas
The Outer Continental Shelf Lands Act (OCSLA) of 1953 grants the Secretary of the Department of the Interior (DOI) the authority to manage offshore energy resources. OCSLA also authorizes DOI to develop regulations to carry out that authority. Within DOI, three agencies work toward that goal: BOEM, BSEE, and ONRR. These agencies work together to manage, regulate, and collect revenue from leased acres across the Outer Continental Shelf (OCS).
Did you know?
The Gulf of Mexico Energy Security Act of 2006 (GOMESA) changed the leasing program for extracting oil and gas on the Outer Continental Shelf (OCS).
Under the 1978 OCSLA amendment, BOEM develops a schedule of planning areas across the Outer Continental Shelf for oil and gas leasing. This program is known as the Five-Year Outer Continental Shelf Leasing Program. The program aims to address national energy needs while balancing economic, environmental, and social considerations.
BOEM creates an Environmental Impact Statement (EIS) to implement the program. The public may comment on the Environmental Impact Statement and the proposed leasing program. BOEM submits public comments for the program and plan to Congress and the President.
Once the Five-Year Program is in place, BOEM plans for each regional lease sale. This is a one-to-two-year process that includes developing site-specific Environmental Impact Statements and offering opportunities for public comment. BOEM will send a notice of sale to interested bidders. The notice of sale contains the terms and conditions of the “blocks,” the nine-square-mile areas offered in the lease sale.
BOEM offers leases through a competitive process that anyone can participate in by submitting a sealed bid. BOEM reviews the bids and identifies the winner (the bidder with the highest offer). The winner will receive the lease if their bid is greater than or equal to BOEM’s fair market value estimate. BOEM calculates the fair market value estimate after identifying the winner.
Fair market value is based on the expected value of exploring for and extracting oil and gas resources from the lease block. Fair market value is not based on actual activities and discoveries resulting from the lease sale. Once BOEM accepts a bid and awards a lease, the lease holder must pay the bonus and the first year’s rent to ONRR and satisfy any bonding requirements.
During this phase, the lease holder must file an Exploration Plan with BOEM. An Exploration Plan allows the holder to explore the leased waters for oil and gas deposits. The plan must include timing, location of wells, method, and potential environmental impact for all exploration activities. This includes the potential environmental impact in the worst-case scenario. BOEM then evaluates the plan. BOEM determines if extenuating circumstances require the lease holder to complete a site-specific Environmental Assessment before proceeding.
Once a company begins exploring, they conduct geophysical surveys, drill to locate the oil or gas, and drill more wells after a discovery. Exploration can last five to ten years. During the explore phase, companies pay rent to ONRR.
Before extracting resources, the lease holder must submit a Development or Production Plan for BOEM’s approval. The lease holder must also apply to BSEE for drilling and operations permits to begin extraction. At the start of development, BSEE will conduct initial inspections. Initial inspections ensure the proper installation of structures and equipment. Thereafter, BSEE conducts periodic announced and unannounced inspections. These inspections enforce lease terms and other conditions.
The lease holder pays annual rent until the operation starts producing oil or gas. At that time, the lease holder stops paying rent and starts paying royalties to ONRR.
Decommission and reclaim
At the close of an operation, the lease holder or operator must return the ocean and seafloor to its pre-lease condition. Under the OCSLA regulations, the lease holder is required to submit a Decommissioning Plan to BSEE for approval. This plan must be submitted two years before the termination of the lease. To meet the National Environmental Policy Act (NEPA) obligations, BOEM prepares a site-specific Environmental Assessment for each removal application on behalf of BSEE.
BOEM requires that companies remove retired offshore drilling platforms from the marine environment within one year after the end of an operation. The lease holder must remove the platform from its foundation by severing all bottom-founded components at least 15 feet below the mudline. The lease holder must then dispose of the structures in a scrap or fabrication yard. Alternatively, the platform can be used to create an artificial reef underwater.
Lease holders post bonds to ensure compliance with lease terms. This includes decommissioning the site. If the lease holder fails to decommission the site, the government may use the bonds to cover the cost of decommissioning. If the lease holder complies, the government returns the bonds to the lease holder at the end of the operation.